At JLT Specialty USA, we serve over 40 percent of the world’s largest insurance-linked securities (ILS) funds. The ILS community has grown rapidly and this change has required more sophisticated financial solutions. Working closely with our ILS clients, our team created a unique new insurance product specifically designed for ILS funds, their boards and investment managers.

We faced two main issues. First, directors and officers (D&O) and professional indemnity (PI) insurance policies that ILS fund managers traditionally purchase—to hedge their main operational liabilities—have struggled to evolve with the growing businesses and cover emerging risks. Cybercrime and international regulatory exposures are examples that further heighten the liabilities of ILS managers, in addition to the liabilities they face while managing catastrophe investments and acting as reinsurers.

The second issue involves the emerging trend around ILS capital deployment. ILS investment strategies are expanding from traditional catastrophe-based reinsurance trades, to recent retail commercial market exposures. In the commercial insurance markets, some ILS funds are now looking at ways to strategically invest their capital in emerging long-tail liability risks, such as cybersecurity, operational risk and financial loss from adverse regulatory events.